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Cisco slices up small business

Networking giant makes $100 million channel investment to get after a market with 100 or fewer employees

Lisbon, Portugal – Cisco Systems’ (Nasdaq: CSCO) two chief SMB executives Andrew Sage and Rick Moran both admitted that the company’s share in the SMB is not large.

Both men who hail from Canada, an SMB country, are trying to change that in a big way.

Currently Cisco globally has just under $8 billion in revenue from the SMB.

The San Jose,-based company announced at its Channel Exchange event, held here, that it will make a $100 million channel investment to try and grow this market. With that investment, Cisco created the Small Business Technology Group to develop new products for this market in connectivity, security, remote access, productivity, customer interaction and customer support.

Moran, who is the vice president, small business solutions marketing for Cisco, described the market as an “unusual one to get to know”.For example Moran said that SMBs are a faster group to return from a down economy. “Customers here are like Sybil. They say they need help when they just hired five new people or when their phone system blew up and then that same customer could look upon new ways to expand their business. We have to address both sides of the need,” Moran said.

To that end, Cisco has segmented the SMB customer into three areas: Basic, Open to Guidance and Elite.Elites understand technology and they want to adopt it and they have IT staff. Moran said that Cisco does very well in this area and some of these customers become good leads for Cisco Certified Partners.

In Basic, these customers are at the low end. They are price conscious and look for point solutions.

The Open to Guidance group will be Cisco’s biggest challenge in the SMB. Moran and Sage both said that the company has to do a better job in making them feel more comfortable with technology.

The buying patterns for all three segments are also hard to pin down. Cisco believes that the Basic customers buy from retail, while the Open to Guidance group may use retail, VARs, direct market resellers such as CDW or Insight or go to full service solution providers.

“The SMB has different needs than the other channels. There is no easy way to match customer type to a channel partner. Customers buy from who they want to buy from,” Sage said.

Cisco’s strategy is to move the small business customers or those with 100 employees are less from transactional to solutions.

Cisco has increased the amount of products for this market to address all three SMB segments.

Paul Edwards, channels and SMB analyst for IDC Canada, said he isn’t sure if Cisco or Cisco partners are in a position today to talk business issues and process with these types of customers. In his estimation the SMB market (under 100 employees) are trying to figure out if technology will give them a competitive advantage. “It’s not an easy market to break into,” Edwards said.

He believes that Cisco’s market share in SMB will increase over time in Canada. “It’s not going to be an immediate win.”

“As Cisco starts to build SMB solutions they need partners that are outside of retail to speak to the customers about those business issues and processes. It is hard to put hard and fast rules to this with so many grey areas. You can’t formalize it to that degree,” Edwards said.

He added that retailers will still have a role to play in all three segments.

“Cisco has freely admitted that they do not have much share in the SMB market, but this is a starting point for them and I absolutely believe they will put together all the right components here. They already have a team in place, the products are in place and the strategy is there. All those things are the right things to do to build revenue in this market, but in Canada, I do not know what is going to be made available or how this strategy will be supported,” Edwards said.

Sage said that Cisco had to alter its pricing philosophy for the SMB.

Typically, he said, there is customized pricing on Cisco products, but in SMB’s case they will look for Web pricing and it needs to be competitive and simplified. Sage plans to work with Cisco’s distribution partners on SMB pricing.

Another change is in product availability. Sage said that Cisco is a build to order company. “You order it and then we build it. This is not acceptable in the SMB where you need to have it on the shelf and be ready to go,” he said.

Cisco also wants to make this area an exciting one with special promotions that are consistent and on-going, Sage said.

“It is our time to lead with the channel in small business,” Sage said.